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Volkswagen draws up refit plan for cars in pollution scam

Wed, Sep 30, 2015 - 7:09 AM

Volkswagen on Tuesday revealed a plan to refit millions of vehicles affected by a worldwide pollution-cheating scam, as its new chief vowed to act ruthlessly to overcome the "severest test" in the car giant's history.

PHOTO: AFP

[FRANKFURT] Volkswagen on Tuesday revealed a plan to refit millions of vehicles affected by a worldwide pollution-cheating scam, as its new chief vowed to act ruthlessly to overcome the "severest test" in the car giant's history.

The German government has given VW until October 7 to explain how it will resolve the scandal, which has rocked the industry and wiped 29 billion euros (S$51.4 billion), or 38 per cent, off VW's market value in 10 days.

Chief executive Matthias Mueller, who took over the Volkswagen steering wheel on Friday, told senior management that technical solutions would be submitted in October.

Once approved by the German authorities, Volkswagen will inform customers and arrange for the cars to be refitted, he told managers late on Monday, according to remarks released by the firm.

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The carmaker later on Tuesday released a statement saying owners of the affected cars would be notified "in the next weeks and months", adding that "all the brands concerned are going to create Internet pages where clients will be able to follow developments".

Volkswagen, the world's biggest carmaker by sales, has admitted that up to 11 million diesel cars worldwide are fitted with devices that can switch on pollution controls when they detect the car is undergoing testing.

They then switch off the controls when the car is on the road, allowing it to spew out harmful levels of emissions.

CEO Mueller insisted that the software was not activated in all 11 million vehicles, however, and the number of vehicles actually needing a refit would be fewer than that.

Nevertheless, with the embattled auto maker facing incalculable costs and a potential tidal wave of litigation, CEO Mueller described the crisis as "the severest test in (VW's) history." "There is no justification for deception and manipulation," the 62-year-old manager said.

"The inconceivable misconduct that has come to light in Volkswagen over the past days pains me and angers me immensely." VW's upmarket subsidiary Audi and its Czech arm Skoda have admitted that more than three million of their vehicles were fitted with the suspect devices. Spanish unit Seat has said 700,000 of its cars were also equipped with the technology.

A spokesman for VW's trucks division said that 1.8 million light commercial vehicles were involved.

'RUTHLESS' RESPONSE NEEDED

The carmaker, which in the first six months of this year overtook Toyota to become the world leader in terms of sales, needed to win back the trust it has lost, Mueller said.

A YouGov opinion poll revealed that VW's image among German consumers has taken a severe hit and is now no better than Daimler's city runaround, the Smart.

The affair "needs to be cleared up ruthlessly. We need courage and fighting spirit. It will be difficult and... there will be setbacks. But we can and will do it," Mr Mueller said.

"Together, we can overcome this crisis and make Volkswagen an even better company."

On Monday, German prosecutors said they were looking to establish the exact chain of responsibility in the scam, opening an inquiry against the former CEO Martin Winterkorn, who insisted that he had not been personally aware of any wrongdoing on his part.

In addition to Germany, national authorities in several other countries have announced probes. Japan on Tuesday joined a long list of countries in ordering some of the country's biggest automakers to report on whether their diesel vehicles meet Japanese standards.

And the European Commission on Tuesday called Herbert Diess, head of the Volkswagen brand, to Brussels for talks to assure that the group "cooperates fully with national authorities and respects European regulations".

Lawsuits are also being filed, including class-action litigation in the United States.

VW has already said it will set aside 6.5 billion euros in provisions in the third quarter. But analysts suggest one to three billion euros more could be needed.

On top of that, VW also faces onerous regulatory fines, including up to US$18 billion in the United States, and the fallout on customer purchases cannot yet be estimated.

COLLATERAL VICTIMS

Germany's economy minister, Sigmar Gabriel, has promised to support the Volkswagen group's 600,000 employees who he said do not deserve "to pay for the faults of their managers".

And the German automobile federation VDA has weighed in against calls to reject diesel cars altogether, denouncing what it said was an "anti-diesel lobby" acting in a "completely unjustified" way.

The repercussions of the scandal can be clearly seen in VW's hometown of Wolfsburg, in northern Germany, which has imposed an immediate freeze on spending and hiring in the public administration in case its finances are adversely affected.

The business tax VW has to pay, calculated on the basis of its annual turnover, is a significant source of revenue for the town's coffers.

Located 200km west of Berlin, Wolfsburg was founded in 1938 with the construction of the first factory to build the carmaker's iconic Beetle model.

More than half of the town's population of around 124,000 work for VW, which finances a long list of local sporting and cultural activities, including the premiere league football club VfL Wolfsburg.